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REITs are one of those dividend-paying instruments that investors have depended on to quench their thirst for income. But has the REIT rally lost its steam?

Barclays analyst Ross Smotrich and his team think real-estate investment trusts will struggle in 2015 to deliver meaningful outperformance compared to the broader markets. Why? Smotrich says earnings growth for REITs, though still positive, is slowing down, while valuations remain at historically high levels.

In a note published today, Smotrich predicts a total return for the REIT sector at 9% this year. He writes:

The consensus view is that the Federal Reserve will begin to raise rates in mid-2015. While higher rates would likely coincide with good real estate fundamentals and stable cap rates, we think in that event, upside could be limited near term given the historical negative correlation between REIT multiples and interest rates. In 2014, REITs benefitted from the search for both yield and a safe haven during geo-political uncertainty. We think the opportunity for high REIT returns has diminished; valuation levels are at the high end of historical ranges and expected growth appears to be priced into the stocks. On the plus side, we think REITs offer a defensive alternative, solid dividend income and dividend growth. It’s a big note – totaling more than 100 pages – that offers an outlook for more than 30 companies. – REIT sector generating a 9% total return this year.

Smotrich’s view isn’t universal. The 100-page note published today, which digs into more than 30 companies — downgraded multi-family REITs, which operate apartment buildings, to neutral from positive, and upgraded the group focused on shopping centers to neutral from negative.

As for company specific moves, Smotrich downgraded the following stocks:

Essex Property Trust (ESS) – Cut to equal weight from overweight. In this case, the stock is viewed as fairly valued. Analysts argue that it is unlikely to grow rent revenue at the pace needed to fuel multiple expansion.

Equity Residential (EQR) – Cut to equal weight from overweight. This is another valuation call after a strong 2014 performance.

Faster and sooner are the words the folks at Barclays used today when forecasting how the Federal Reserve will handle interest rate hikes in 2015.

During a media briefing regarding the firm’s quarterly Global Outlook report, strategists maintained its forecast that the Fed will start raising interest rates in June 2015, but warned that the central bank could take action as early as March. And once it begins hiking rates, the Fed will likely take action every month, rather than every other month, according to Dean Maki, an economist at Barclays.

Exactly when the Fed plans to start raising interest rates next year has been a subject of concern among investors. Most central bankers continue to believe that the central bank won’t act until the middle of next year, which is a view shared by many investors. But some Fed officials have warned that unexpectedly strong gains in the job market, if they can be sustained, could push up the timing of interest rate increases.

Barclays forecasts U.S. GDP growth of 2.5% during the current quarter, which ends next week. Granted, that is slower than the better than 4% expansion generated during the previous quarter. Still, strategists at Barclays say that growth is strong enough to fuel a faster-than-expected drop in unemployment.

All eyes are on the Fed until it concludes its current policy committee meeting tomorrow, and Barclays strategists Rajiv Setia and Anshul Pradha today say they expect the Fed to continue the tapering process at its current pace. Since rates have been falling since the Fed’s last meeting, the Fed has less cause for concern that rising rates brought about by tapering could choke off growth. From Barclays:

Given this backdrop, the Fed is likely to continue reducing the pace of purchases at the January meeting and also to upgrade its assessment of economic data during the inter-meeting period. Our economists expect the Fed to reduce the pace by another $10bn, to $65bn, and ultimately exit QE3 by the October 2014 meeting. One potential source of a dovish surprise from the upcoming meeting is a further strengthening of forward guidance; however, we believe this is unlikely given the steps already taken in December. The Fed stated that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.” Given the sharp drop in the unemployment rate and growing proximity to 6.5%, some have suggested that threshold could be lowered. However, the minutes from the December meeting suggest that this is unlikely; consensus exists only for providing qualitative guidance and placing greater emphasis on the inflation outlook.

Barclays says it sees limited room in the near term for a further rate rally from current levels, with the market already pricing in “a benign path for the hiking cycle, with the fed funds rate rising only to 0.75% by YE15 and 1.8% by YE16″ which is largely in line with the latest Fed guidance. Barclays says investors are likely to remain patient with regard to the pricing of the hiking cycle despite the rapid fall in the unemployment rate, but that this dynamic should begin to change as inflation rises from the current low levels. “If our outlook pans out, we believe the market will increasingly test the Fed’s guidance in coming months,” Barclays writes.

Master Limited Partnerships are on a roll so far this year, up 11.6% in price compared to a 6.6% appreciation in the Standard & Poor’s 500 index.

The Alerian MLP Index yield is hovering around 5.5%.

What’s driving the rise? Recovery from a down year and a selloff tied to rising taxes, but there are other key factors for the appreciation, according to a report out today from Morgan Stanley analysts Stephen J. Maresca, Robert S. Kad, Shaan Sheikh and Brian Lasky. One factor is new and growing institutional interest in MLPs, particularly among pension funds:

Other large pension fund MLP allocations Morgan Stanley highlights: $1 million by the St. Charles Police Pension Fund, $950 million by the Pennsylvania Public School Employees Retirement System, and $200 million by the Delaware Public Employees Retirement System.

And there are other reasons for the appreciation. For one thing, more exchange-traded funds and notes, along with …